The Price of Petrol in India

Petrol is a valuable commodity across the world. Earlier, the petrol prices were changed every fortnight depending on the international market of crude oil and the foreign exchange rates.

The Price of Petrol in India

Petrol is a valuable commodity across the world. Earlier, the petrol prices were changed every fortnight depending on the international market of crude oil and the foreign exchange rates. However, this old system of petrol price trends has become outdated with it being unbale to cope up with the changes in price of petrol. This is the reason as to why a new system has been implemented by the Indian government in order to deal with the price change. The change in the dynamic of petrol pricing in India was the need of the hour.

The Role of Indian Politics in Petrol Pricing

For the first time in 2010, Oil Marketing Companies (OMCs) could change the price of petrol as per the changes in the international market based on the currency exchange rates. Despite many of the OMCs able to set the price of petrol, state Oil Marketing Companies such as Indian Oil Corporation, Bharat Petroleum and Hindustan Petroleum Corporation have not been given the freedom to raise prices as the government fears resentment from the general public. To counter this, the government has also allowed these OMCs to keep the prices constant even if the prices in the international market fall.

How Dependent is India on Petroleum?

The petroleum sector is controlled by both government owned and private players. Private companies include Reliance Industries, Cairn India Ltd. Public sector companies include Oil India, Oil and Natural Gas Corporation (ONGC) etc. However, India is a country which is low in oil reserves and imports almost 75% of its oil form other oil rich countries.

What Contributes to the Price of Petrol in India?

The price of petrol in the international market forms the base component of the price of petrol in India. When it is imported to India, other factors such as the income tax applicable on it, the custom duty, cess and dealer margins.

Below is a table in which it is described as to how the price of petrol is calculated in India:

Taxes and charges levied on the price of petrol

The price of petrol

The international price of petrol + the ocean freight (the price recorded as of June 13, 2018)+ the dollar price

$ 75.33 or Rs.5093.33 per barrel

A single barrel of crude oil

159 litres

The cost of crude oil per litre

Rs.32.03 per litre

The basic calculation done by an OMC

Entry tax levied + processing of the refinery + Landing costs + other operational costs in addition to the margins

The additional VAT that is levied (differs from state to state: It is 27% for petrol + 16.75% for diesel + 25p as the pollution cess with surcharge)

Rs.16.61 per litre for petrol

The final retail price after calculation

Rs.77.11 per litre on petrol

The Reason for the Deregulation of the Petrol Prices

The reason for the deregulation of petrol prices by the central government is simple. Before the deregulation, to compensate with the rise of prices in petrol, rather than increasing it for the public, the government would pay more subsidy to Oil Marketing Companies (OMCs). The limit of the subsidy is around Rs.63000 crore. Not having to pay subsidy to the OMCs will help save the government a lot of money as after the regulation of the petrol prices, the prices will depend on the changes in the international market.

The Problem of Excise Duty

Excise duty forms a major chunk of the petrol price. The government levies Rs.19.48 worth of excise duty on one litre of petrol. However, the government is unable to cut even a single rupee from excise duty as it will have to suffer a loss of thousands of crores. A Value Added Tax (VAT) is also implied which varies from one state to another. Various international events and meetings across the world in the new year could bring the price of petrol down a lot further.

What is in store in the future?

Daily change in petrol prices will not affect the consumers as it is not possible for the price in the international market to vary daily. The deregulation of petrol prices means that the government does not have to pay subsidy which be beneficial in the long run and save the government a fortune.

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